Bank of China Stocks Surge on First Day of Trading on Shanghai Stock Market

October 31, 2009 10:29 PM

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China's second largest bank, Bank of China, has made a strong showing on the first day its stock traded on the Shanghai stock exchange. The bank's stocks rose by 29 percent in the first hours of trading, suggesting China's domestic investors are optimistic about the bank despite its history of bad debts, corruption scandals and other problems.

The success of Bank of China's stocks on the domestic Chinese market Wednesday came more than a month after an international debut on the Hong Kong Stock Exchange, where its initial public offering raised $9.7 billion.

Analysts say investors here in China - like those overseas - were attracted by the sheer size of the bank with its 586 billion dollars in assets, and by its wide reach in what is one of the world's fastest growing economies.

Frank Song, director of the Center for China Financial Research at the University of Hong Kong, says Chinese investors were willing to overlook these risks after seeing foreign investors buy heavily into the bank on the Hong Kong market.

"I don't think they underestimate the risk of the overall economy, the political uncertainties, and also the risk of problems within the bank," he said. "I think investors actually have very good knowledge of this, but given the rapid growth of China, given the opportunity, given the coordination of foreign investors and the government, they think this (risk) problem may be overcome."

The listing of Bank of China shares comes as China reforms its banking sector under the terms of its accession to the World Trade Organization.

Bank of China, like other financial institutions, is owned by the government and has been plagued by a large amount of bad debts and multi-million-dollar corruption scandals.

Analysts call the bank's listing a major step for China's financial services sector. They say going public puts the bank on the road to more transparency and improved corporate governance because investors will demand accountability.